Best CDS Data
The opaqueness of the credit default swap (CDS) market circa 2008 was widely blamed as an aggravating factor of the global financial crisis. Five years later, Markit is a leader in the business of shining light on the market.
Markit continues to enhance its core CDS valuation product, which gives market participants access to a price representing an aggregated view of a credit, as opposed to the view of a single market maker.
“The transparency that we provide behind our pricing is what sets us apart,” said Ed Chidsey, Markit’s global co-head of data services. “We differentiate ourselves by providing more information rather than less.”
Data is at the heart of Markit’s business, and the company is expanding organically and via acquisition. “We are investing heavily to combine our existing datasets to produce more derived data, like liquidity information,” Chidsey said. “We also acquire new datasets, like the acquisition of Data Explorers last year which expanded our equities footprint.”
Data Explorers’ dataset, which covers $12 trillion of securities in lending programs of more than 20,000 institutions, provides a view of short-interest data and institutional fund activity across all market sectors. By combining Data Explorers’ data with its own, Markit can develop products for equity traders and investors in ETFs, dividend forecasting and quantitative research.
Markit’s CDS values are drawn from multiple financial institutions including inter-dealer brokers, electronic trading platforms, major market makers and large buy-side firms. The company says it cleans and aggregates more than a million data points daily, using sophisticated algorithms to create a single, independent, reliable data point for each credit. This data helps financial institutions mark their books to market, measure risk and monitor portfolio positions.
“We are continually enhancing and adding new features,” Chidsey told Markets Media. “For example, we have rolled out a new CDS Sensitivities service which provides valuable information about the relationship between a CDS price and other market variables.”
The CDS Sensitivities service helps clients understand how sensitive a CDS spread level is to changes in interest rates, credit quality and recovery assumptions. The report, which comprises seven variables, covers all five-year, single name CDS and CDS indices priced by Markit.
“We have been aggressively adding multiple series of indices across multiple asset classes including equities, loans, commodities, and environment,” Chidsey said.
Managing reference data efficiently and cost-effectively has become especially vital for trading and investment firms amid much-faster trading speeds and the drive for increased transparency in the wake of the 2008-2009 global financial crisis. Markit has created reference databases for credit derivatives and syndicated loans, and is extending that to other asset classes.
“We are investing heavily to combine our existing datasets to produce more derived data, like liquidity information.” Ed Chidsey, Markit’s global co-head of data services
Markit offers a system for the identification of credit-derivative long legal names based on its Reference Entity Database service, which provides a standard entity identifier for entities on CDS. Markit said it recognized the value of creating an accurate naming and numbering system for CDS instruments and underlying reference entities and acquired RED, an early-stage database of CDS identifiers.
An extensive legal verification process of company documentation from local jurisdictions confirms a reference entity’s long legal name and its relationship in a pair to a reference obligation. “Reference data is about tracking the relationships among entities, issuers, and counterparties,” said Chidsey. “It gets more complicated when you’re dealing with derivatives, because a CDS trade references both an entity and a bond, or reference obligation.”
Two sets of unique alphanumeric codes—‘CUSIP-linked Entity MIP codes’ are created in RED: one to identify the entity’s long legal name and one to establish the pair. The database currently contains 12,000 reference entities traded in the credit derivatives market, covering 6,000 reference obligations.
In addition to its data businesses, Markit also provides OTC trade processing through MarkitSERV, a 50-50 joint venture with Depository Trust & Clearing Corp.